Australia - Adani to Take Advantage of Indian Coal Demand with Abbot Port Acquisition

12 May 2011 • by Natalie Aster

Mundra Port and Special Economic Zone, the port-operating arm of India's Adani Enterprises, has agreed to buy Abbot Point Coal Terminal in Australia for AUD1.8bn. BMI believes the all-cash deal is designed to allow Adani to ship its increasing coal output from Galilee to its power plants in India, tapping into growing demand from the power-hungry nation.

The AUD1.8bn deal was signed in Brisbane between officials of Mundra Port Pty and Queensland's government. Mundra Port's chief financial officer, B. Ravi, said the company had arranged short-term mezzanine debt to fund the deal and said Standard Chartered was arranging the debt. He did not disclose the amount. 'It's a good deal for Mundra Port as the Abbot Point terminal will have assured cargo from Adani's own mine there as well as other coal mines in the region', said Kapil Yadav, an analyst with Mumbai brokerage Dolat Capital. The deal is one of the largest acquisitions of an Australian asset by an Indian company since Adani acquired Linc Energy's Galilee coal project for AUD2.7bn last August.

Going for Coal

Abbot Point Monthly Throughput (mn tonnes)

Source: Port Authority

BMI believes Mundra will look to expand Abbot's capacity on the back of rising output from Adani's Galilee mines. 'With a capacity of 50mn tonnes, we have plans to raise it to 80mn tonnes in five years with demand of 100mn tonnes coming from Adani's Gaililee mines', said Mundra Port. 'We may raise funds from equity in about three months', Ravi said. Abbot Port is expected to generate revenue of AUD110mn in 2011, growing to AUD305mn in 2016, Mundra Port said.

BMI notes that Mundra's purchase will leave it well placed to take advantage of India's growing demand for coal imports. India holds 10% of the world's coal reserves, but a shortfall in local supplies has grown rapidly because of an increase in coal-fired power plants. The country is likely to import 135mn tonnes of coal in the fiscal year that began on April 1. With the country aiming to halve its nearly 14% peak-hour power deficit within two years, we expect this demand to continue.

Located in North Queensland, the Abbot terminal services three mines in the Bowen Basin. The state of Queensland is selling the terminal as part of an AUD15bn infrastructure privatisation program. The Queensland government has already raised at least AUD6.3bn from the sale of the Port of Brisbane and the AUD4bn float of rail freight business QR National. 'The (Abbot) transaction has delivered proceeds well above initial expectations of AUD1.5bn', Queensland Premier Anna Bligh said in a statement.